The global experience of the pandemic had brought to a halt the entire international economy. Across all sectors and industries, the strains on business operations from the restriction of movement, investor confidence and uncertainty have been felt by everyone. This is true of property investors. Whether you’re a stellar investor or novice newbie, the property market has undergone some significant changes thanks to the pandemic. It’s not all bad news.
Types of real estate investment
Before we jump into examining whether it would be wise to invest in property during the height of a pandemic or wait until it’s over; it’s important to understand the different types of property investment to appreciate how the pandemic affects the potential return on each investment.
- Rental properties – buy an investment property and rent it
- Holiday homes – buy a second property and let it out to holidaymakers
- House flipping – buy a cheap property to renovate and sell to make profit
- REITs – companies that pool money from investors to buy and manage large investment properties
How the Pandemic affected the property market
To combat the spread of the Coronavirus, people have been forced to limit social interaction, keep their distance and work from home where possible. What has this meant for the key players in the property market? Estate agents, letting agencies, homeowners, investors, tenants and lending institutions have all been affected.
Since the nature of property investment largely revolves around having access to the property, social distancing measures have limited the ability of estate and letting agencies from conducting property viewings. As seen in March 2020, this had resulted in fewer home sales. In addition to this, many young professionals who were forced to work from home suddenly had no compelling reasons to continue renting in the cities. As such, many spent the latter half of 2020 in their family homes – reducing the demand for rentals.
Construction companies were forced to halt operations, delaying the construction of building sites; many of which were invested in by individual investors who faced a long wait for their capital returns. In addition to this, property market stocks on major exchanges faced volatile fluctuations resulting from the uncertainty of those companies returning to work.
Combating social distancing with technology in the property market
Many estate agents, tenants, investors and letting agents embraced technology more than ever during the peak of the pandemic. Through virtual viewings and intelligent investment apps; investors were able to sustain their investments.
It is still possible, with great caution, to invest in a buy-to-let property via virtual viewings. Once purchased, the letting process can begin through virtual viewings to prospective tenants from the comfort and safety of their own homes.
Banks and lending institutions have adopted a more technological approach to their systems. Online applications and telephone interviews enable investors to source capital for real estate investment without having to leave their homes.
Investing in REITs requires minimal experience. A REIT allows investors to pool their funds, of which the trust uses to invest in property to generate income. Any profit is then distributed to investors as dividend payments. For those investing in REITs, they can track the performance of their investments on intelligent apps.
The economic impact of the pandemic saw countries GDPs plummet (WorldBank), unemployment rates rise and disposable incomes fall. The effects of such economic downturn have caused renters to reconsider their positions, investors to reassess their appetite for risk and consumers to retain savings.
Elasticity of the property market
Real estate by today’s standard is by no means an inexpensive investment. However, as the price tag increases, elasticity increases significantly for property. In other words, demand exceeds the proportional increase in home prices. Those with plenty of disposable income, are more likely to be willing to pay more for the property they want. The caveat for investors looking to make a return is that initial investment is likely to be high.
In such an economic climate, it may be worth investing more into a house-flip that is likely to sell for a disproportionately higher price. However, such opportunities are hard to come by and buy-to-let’s do not have the same elasticity of demand.
Should you invest in property during the pandemic?
Two major things have happened since the beginning of the novel coronavirus pandemic: first, society has, on the whole, become largely accustomed to living in the pandemic. Second, the end is now in sight as vaccines around the world are rolled out. Therefore, there are arguments to both invest in property now, and to wait it out before forking out cash and taking the risk.
Money is still relatively cheap
We can’t possibly say how long low-interest rates will stick around but the Bank of England has held interest rates at a historic low of 0.1% since March 2020. The Monetary Policy Committee voted unanimously to keep the base rate at this level. It is the rate at which banks and lenders lean on when they set their own interest rates. It has been speculated that the interest rate could fall to 0% or even negative figures.
With that said, now could be the perfect time to borrow money to fund property investment. Combining low-interest rates with a strategic investment plan could help to propel an investment into a high-yielding project.
Money in the bank is not performing
Whilst many people have reevaluated their spending habits due to uncertainty, and are retaining their savings; low-interest rates mean that money in the bank is doing next to nothing. Make your money work hard for you by investing in property and building your investment portfolio.
Stamp duty reduction
Until 31st March 2021, a reduced rate of stamp duty will be applied to the purchase of a property in England and Northern Ireland. If the amount is under £500,000, no stamp duty will be payable. When purchasing an additional property, like a second home or an investment property, an extra 3% in stamp duty on top of the revised rates for each band will be paid on properties above the value of £40,000.
With that said, the next few months of 2021 is an ideal time for first-time buyers to invest in property. Since a lower down payment produces better returns, it’s a great opportunity to save some cash when investing in property.